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Noel: What do the Irvine Company, McDonalds and our lovely President have in common?

Audience: They don’t pay taxes.

Noel: (laughing) Great. (Laughing) They’re a billion dollar real estate investors. And you might be wondering, how in the world were they able to do that?

Noel (cont’d): Simple.

Noel (cont’d): They took advantage of the most powerful real estate tax strategies.

Noel (cont’d): They use the powerful tax code to zero their taxes.

Noel (cont’d): As you can see, IRS is their friend. Is IRS your friend?

Audience: No!

Noel: No? Well, then in the next few minutes you’ll discover 5 ultimate tax secrets to zero down your taxes.

Noel (cont’d): It’s called (picks up piece of paper from table) – the LDDER Approach. That if you apply (puts paper down on table) you will zero your taxes.

Noel (cont’d): So you can pay zero and become

Noel (cont’d): the hero.

Noel: Are you guys ready –

Audience: Yes.

Noel: To become the hero?

Audience: Yes.

Female voice: Always.

Noel: Let’s do it. The first L (picks up paper from table) stands for like-kind exchange. Raise your hand if you’re familiar with like-kind exchange.

Noel: Great! (puts paper on table). A like-kind exchange allows you to postpone your taxes by exchanging up to a higher price property. It’s a way to consolidate your real estate portfolio…

Noel (cont’d): Or to – to minimize your taxes by building up your portfolio. It’s a two-step process.

Noel (cont’d): One – you got to sell the property. Number two, you have to re-invest the cash proceeds.

Noel (cont’d): I have a client. His name is Rich. He started with one triplex twenty years ago.

Noel (cont’d): Guess what he ended up with right now?

Noel (cont’d): Apartment buildings.

Noel (cont’d): He started with a triplex. Now it’s worth I think ten million dollars.

Audience: Wow!

Noel: Here’s a strategy that you may not be familiar with. Once he passed away,

Noel (cont’d): and that property transferred to his survivors – which might be the kids – his starting number which he bought way back, I think like half a million dollars. The starting numbers of the beneficiaries – or the kids – is not half a million dollars.

Noel: Its ten million dollars. So, if the kids decided to sell the property the next day for ten million dollars, guess – what’s the tax for the kids?

Audience: Zero?

Noel: Zero (makes symbol of 0 with his hand). What is the strategy called? It’s called the 3D. It’s defer – defer – and die. Remember that.

Noel: (laughing) Very powerful concept! The next one, the D (picks up paper) – stands for depreciation. (puts paper down) Depreciation allows – it’s a deductible expense for the wear and tear of the property. What is the plus? It’s a paper loss. There’s no money coming out of your pocket. I have – I have a client, Rich, I met 15 years ago. He went to my office and he said, “Noel, can you review my taxes?” And I said, “What do you have?” He said, “I only got like 2 rental properties.” And I was thinking, ‘Aah, that’s gonna be easy.’ I sat down and look at the schedule E form line one, gross rents – one million dollars. I said, “Whoa, what do you have?” “Well, I’ve got two apartment buildings.” It just gets better. One million dollars gross rent. Rental expenses, eight hundred thousand dollars.

What’s the rental income?

Noel (cont’d): Two hundred thousand dollars – on his pocket – doesn’t fit over here (demonstrates his pants pockets). But, he’s got two hundred thousand dollars cash in his pocket. Now, here’s the kicker. I told you about depreciation, right? His depreciation was two hundred fifty thousand dollars. What’s his loss showing on the return? Fifty thousand dollar loss! I was looking at him and said, “You’re putting two hundred thousand dollars in your pocket? And you’re showing 50K of losses.” And, I was thinking, ‘Man, this is too good to be true.’ But, it was there.

Noel (cont’d): So, take advantage of that depreciation to maximize if you have rental properties. (End of Part 1)

Noel: So, today I will discuss with you, three tricky tax expenses. It’s called the 3 M’s.

I will show you how Uncle Sam takes away your money and I will also show you how to get it back. Are you guys ready?

Audience: Yep. Yes.

Noel: Let’s do it.

Mortgage Interest

The first M stands for, mortgage interest.

I had a client. His name is Johnny. I gotta tell you he’s very extreme when it comes to minimizing his taxes. I was reviewing his return and guess what I saw on the mortgage interest? $50,000 of mortgage interest.

I ask him, “Why is this too high?” He said, “Well, I put zero down so I can get a huge mortgage interest deduction. Noel, it’s called, tax strategy.” I said, “Johnny, let me tell you something.”

This is what I told him.

See, this fifty thousand? That’s your mortgage interest. If I multiply that by 30 percent, which is your tax rate, your tax savings is $15,000. That’s the good part.

Here’s the bad part. The difference between the 50,000 that came out less the tax savings of 15,000 is how much? 35,000.

I ask him, “Do you know where that goes?” He said, “No.” It goes down the drain. That’s where it goes.

Audience: (Laughing.)

Noel: And, I told him that imagine you had it for ten years. So, you multiply $35,000 times 10, that’s $350,000 that you paid for nothing. It’s non-deductible expenses. So he said, “Really? Oh, I’m looking at it differently.” I said, “Yeah.” So, he said, “What can I do? That’s a lot of money.”

I said three things. Number one, do a by weekly payment instead of paying once-a-month – do every two weeks. He said, “Why?” Cause you want to shave off 4-6 years off the mortgage payoff.

Number two is, why don’t you try to convert it to 15-year fixed. Why? You will save a tons of mortgage interest. You’ll probably shave – it’s gonna be close – 15 years – half.

And, then number three, If you have the chance, convert a fixed loan to a line of credit. Why? If you convert a fixed loan to a line of credit – a line of credit is like a credit card expense. If you pay it down, they will base the interest off the balance. The sooner you can pay that off, the sooner you can be debt free.

Medical Expenses

Noel: Number two – the second M– medical expenses.

Alright, medical expenses – have a 10 percent income limitation. That means you can only deduct 10 percent – in excess of 10 percent of your income.

So, let me give you an example. Johnny, for example, makes $100,000 and I multiply by 10 percent. So, his limit is $10,000. If his medical expenses is $11,000, how much can he deduct on his return?

Audience: $1,000?

Noel: One thousand dollars – it’s in excess. So, as you can see the first 10 percent is like a non-deductible expense.

So, guess – guess what happened to Johnny? Johnny had a kidney surgery but he cannot deduct his expenses so he asks, “Noel, what can we do? I want to deduct these medical expenses.” I said, “I don’t know. Have another surgery?”

Audience: (Laughing)

Noel: He looked at me and said, “Okay.”

Audience: (Laughing.)

Noel: Here are three things that you can do to have – have medical expense deduction.

Number one, you have to bunch the expenses together in one tax year. So, if you have a major surgery, plan accordingly and do it in one year.

Number two and number three is about reducing your income. One way to do that is to maximize your 401K or retirement plan and, number two, if you have a sideline business maximize the expense.

Miscellaneous Expenses

Noel: Third M – miscellaneous expenses.

This, miscellaneous expenses, can be broken down into three parts. The first part is what they call, unreimbursed employee expenses. So, if you’re a salesperson, commission people, you can deduct a lot of unreimbursed employee expenses.

The other one is, other expenses, and the other one that I want to talk about later is toastmaster’s expenses, okay? There’s a limit though. There’s a 2 percent income limit. It means that you can only deduct in excess of 2 percent of your income.

So, let me go back again to Johnny. A hundred thousand dollars times 2 percent is two grand. The first two grand you cannot deduct. The only thing you can deduct is above it.

So, if it’s a reimbursed medical expenses – I mean, a reimbursed employee expenses, is $2,001. How much can he deduct? One dollar. I told him the rules.

He got pissed off…

Audience: (Muffled laughter)

Noel: He said, “What can we do?” I said, “Well, the way we can probably do this is, to work on this.

Have you guys seen this before? Who’s doing their taxes? Raise your hand.

There you go. Are you guys familiar with this? This, my friend got 50 deductions.

If you’re not familiar with this, I can e-mail this to you.

Audience: (Inaudible, muffled. Some light laughter.)

Noel: Is that something of interest?

Audience: (Inaudible, in agreeance)

Noel: Okay. So, here’s how we break it down. I already told you about the reimbursement employee expenses. Anything that’s necessary for your job performance or to do your job is deductible if it’s on unreimbursed.

The other one is other expenses. There’s a lot a bunch here. What I want to talk about is toastmaster’s expenses. Very important if you’re not deducting.

If this is something – here’s the rule – that’s the minimum rule. If this is something to improve your skills for your job, it’s deductible. So, from work to here and back, you should be deducting it.

Noel: As long as you can document it. How? Travel expenses got to be more than 50 percent of your time. So, if you went to Vancouver for more than 50 percent, meaning you did a lot of – you know – starting Wednesday – to that – it’s all business, it’s all deductible. You just have to document it. Got it?

So, in closing, the 3 Ms is a perfect example of how Uncle Sam takes away your money. Mortgage interest, medical expenses and miscellaneous expenses. Try to apply what I told you today so you can take more money back.

So, here’s the last thing I have to say – behind every successful man stands a woman and Uncle Sam.

Audience: (Laughing.)

Noel: One takes the credit, the other takes the cash.

Audience: (Laughing/ clapping.)

Noel: If you like to learn more, click the link lowermytaxnow.com, and subscribe to my weekly blog. Until then, this is Noel Dalmacio, your ultimate CPA of Lower My Tax Now.

Did you own an existing home that you bought less than two years ago? And because of some unforeseen situations, you are force to sell it. Worse, now you are worried about the potential tax that you will be paying on the sale.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

In order to claim the $500,000 capital gain exemption on the sale of your home, you need to use and own it for two out of the last 5 years. Now, if you did not meet the 2-year rule when you sold your home, you can use the “reduced exemption” rules in order to avoid paying taxes.

A reduced exemption is available if the reason why you sold your home was due to:

The reduced exemption is calculated by dividing the total number of months you owned and used it over twenty four months. Here’s an example: Donald owned and used a property in Washington, DC for 12 months. Due to job relocation (he will go back to New York) he sold his property. Because the move was job-related, he qualifies for the reduced exemption.

Do you have an existing student loan that you want to pay-off? There is one strategy that you might want to use to pull this off.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Due to the lower interest rate, consolidating your student loan debt by using a mortgage refinance is one of your best options. However, before pursuing this option, here are the pros and cons that you need to consider:

Pros

1. Take advantage of lower interest rate – if your student loan interest rate is higher than your mortgage rate, then you can save money.
2. Lower monthly payments – by consolidating and having a lower interest rate and longer term, your monthly payment will be lower.
3. Tax deductibility of the mortgage payment if structured as home equity loan. Equity loan up to $100K is tax deductible no matter how you used the proceeds for.

Cons

1. You are converting an unsecured debt (student loan) into a secured debt (mortgage) once you consolidate it via mortgage refinance. If you cannot pay for your home, you are putting your home at risk of foreclosure.
2. Pay more interest if you consolidate. If your student loan has 10 or 15 years, you will be extending your payment period to another 15 or 20 years. That means you will be paying more interest over time.
3. Incur refinance closing costs. Need to account for additional closing costs when analyzing the benefit of consolidation.

So if you decide to do this, please carefully consider the pros and cons before consolidating your student loans with your mortgage refinance.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Do you have an existing business or were issued a 1099 but you decided to ignore it and not report or file any tax returns?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

The Franchise Tax Board (FTB) sent letters to over 41,000 California businesses that have not filed their 2015 CA income tax return. Business non-filers have 30 days to file a tax return or show why they are not required to file.

If you disregard the letter you will be assessed penalties, fees and interest based on income and other information reported to the FTB. The FTB receives information from the IRS, EDD, BOE, financial institutions, cities, and other businesses and matches the information against its own tax record to identify potential non-filer corporations, LLCS & sole proprietors.

The FTB may also estimate your income if you hold a license. They will base it on the average income of someone with that license. For example, if you have a real estate license, the FTB will assess tax based on what they believe a real estate sales person earns. That’s messed up, right?

For first-time non-filers, the FTB will send you a “request to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty and interest but no demand penalty or filing enforcement fee.

For repeat non-filers, the FTB will send you a “demand to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty, demand penalty and a filing enforcement fee.

Now let me tell you this, all these penalties and interest, they quickly add up. So what do you need to do? If you received one of these notices, you can request more time to respond to get more information by calling 866-204-7902 or go to FTB’S website at www.ftb.gov.

Normally, most of these penalties are available for reasonable cause exemption so you can waive the penalties. However, reasonable cause exemption is almost impossible to get in California since California does not conform to the IRS first-time penalty abatement program.

Also, the FTB also said that just because you do not understand that you have a California filing requirement is not a ground for reasonable cause exemption.

So here’s my tax tip to you, if ever you receive an FTB letter, please do not ignore the letter. It would not magically disappear or go away. Trust me on this! So make sure you address it ASAP in order to minimize any potential interest and penalties.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Here’s a tax question I got from one of my clients: “I’m paying almost 10% CA income tax. If I buy a second home in Nevada, can I claim Nevada as my resident state?”

Great question!

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

You know what she’s trying to do right? She wants to avoid paying the CA tax and take advantage of Nevada’s “0” state tax! I don’t blame her! So, what’s the answer to her question? Well, I will answer it with my two favorite words: “it depends”. Here are few things you need to consider if you want to be a resident of a tax-free state:

Document it – you need to show that you spend more than half a year in the state that you consider your permanent home. You need to keep a diary or a log showing the number of days you spend in each state.

Prove it – in order to prove your new state residency, you need to do the following: change your driver’s license & car registration, register to vote, apply for a library card, find a new doctor in the new area, file a Declaration of Domicile (intent to live), open a local bank account, shop locally, get a hunting or fishing license, cut ties with the old resident state.

There you have it. So try to document and prove it if you want to become a resident of a tax-free state.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Are you planning to rent out your home this summer? You see, summertime is the time of the year when people usually want to rent out their property. But before you jump and do it, there are some tax issues that you need to be aware of.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here are some tax issues you need to be aware of when you rent out your primary or vacation home:

1. If you use your vacation home solely for personal use, then it’s treated like a second home and the mortgage interest, real estate taxes, points & private mortgage insurance (PMI) will be tax deductible.

2. Now if you decide to rent it out, it becomes a little bit tricky. Here are 3 tax scenarios that can play out once you start renting it out:

a. Tax-Free Income Property
The first one is called tax-free income property. If you rented the vacation home for 14 days or less during the year, you don’t have to report the income. You get tax-free income! You can generally deduct mortgage interest, real estate taxes, points & private mortgage insurance but you can’t deduct any other rental expenses.

b. Rental property
The second one is called rental property. If you use the vacation home personally for LESS than the greater of 14 days or 10% of the time the home is rented, all rental expenses are deductible.

Example: You stayed in your vacation home 18 days last year. It was rented at fair market value for 190 days. In this example, your personal use was less than the 10% limit (19 days). Therefore, your rental deductions are tax deductible.
c. “Expenses claimed limited to income” property
The third one is called “Expenses claimed limited to income” property. If you use the property personally for MORE than the greater of 14 days or 10% of the number of days it’s rented, the rules change. Your rental deductions are limited to the amount of your rental income. However, the personal-use portion of taxes and mortgage are still tax deductible on your return.

Example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Therefore, your rental deductions are limited to the rental income you received.
TAX STRATEGY – If you rent your home to your business for 14 days or less, your business can deduct the payment as business expense. However, the rental income you received will be tax-free! Best of both worlds!

There you have it. Make sure you review and listen to this video blog to make sure you understand the tax issues before renting your property out. If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Are you making more than the income limit to allow you to fund your Roth IRA? And after applying various strategies to lower your income, you are still above the income limit. So what do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

When all things fail, you can take advantage of the Roth IRA backdoor contribution. Here’s how it works:

1. You can make a NON-deductible traditional IRA contribution
2. Then convert it to a Roth IRA
3. If you don’t have any other money in an existing traditional IRA, you will only pay the taxes on the earnings when you convert

So this is like a tax loophole for the rich if you are making too money and you still want to fund your Roth IRA. However, here’s a tax trap you need to be aware of though – if you have money in an existing traditional IRA, your tax liability will be based on the ratio of nondeductible contributions to the total balance in all of your traditional IRAs. So watch out! If you have a sizeable 401-K account that was transferred to a traditional IRA, you probably have to think twice if you want to convert. However, if paying tax is a non-issue, and you’re looking at the long-term plan or goal – the big picture!, I would recommend that you convert the whole traditional IRA account into a Roth. Why? Because after holding it for 5 years and when you turn 59 ½, the contributions and earnings will all be tax-free!

So review your account and make sure to take advantage of the Roth IRA backdoor contribution.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Would like to maximize your Roth IRA contributions? However, you read or heard that there are income limits. So what do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

If you want to put in $5,500 ($6,500 if you’re over 50) in your Roth IRA for 2017, your income must be less than $118,000 if you’re single or $186,000 if you’re married. Here are 5 ways to reduce your income:

1. Contribute to your employer’s retirement plan
You can put in up to $18,000 or $24,000 if you’re over 50.

2. Take advantage of your company’s flexible spending account (FSA)
If your employer is offering a health care and/or dependent-care flexing spending account, please contribute the maximum amount. For health care FSA, you can put in $2,600 and for dependent care you can put in $5,000.

3. Contribute to a health savings account
If you have a high-deductible health insurance policy, you can contribute up to $3,400 for self-only coverage or $6,750 for family coverage, plus a $1,000 catch-up contribution if you’re 55 or older.

4. Reduce business income. Review your expenses to make sure you did not overlook any additional deductions. Also, you can fund a business retirement plans to further reduce your business income.

5. Sell stocks for a loss. You can report up to $3,000 of capital loss to offset your income.

So those are five ways to make sure that you reduce your income so you can qualify for a Roth IRA contributions.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Imagine for a moment that you won the Powerball! Congratulations! When you are about to claim your winnings, CA lottery asked: Do you want a lump sum or an installment payment over 30 years? What do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

With a lump-sum payment, you will need to pay the entire tax right away. With an annuity or installment payment, you will be taxed as you receive your payments every year. Here are some factors to consider in choosing your options:

Lump-sum

1. If you are good with money management and have smart money habits.
2. If you want to have control of the entire winnings and wants flexibility.
3. If you think tax rate is going up.
4. If you can invest the money outside and earn a modest 3-4% return, then you will be way ahead investing a lump-sum payment compared to an annuity.

Annuity or installment payments

1. If you are a big-time spender and you are trying to protect yourself from YOU. Because the annuity is like a yearly guaranteed payments for the next 30 years.
2. If you think tax rate is going down.
3. You are not getting taxed on your investment income, because Powerball is investing your money.
4. If you die prematurely, the future unpaid payments become part of your estate. You can pay the estate tax by buying a life insurance policy to cover the tax bill or Powerball can convert the annuity into a cash lump sum.

So what’s the LowerMyTaxNow strategy? Looking at the factors, I would consider a hybrid approach. I will take the lump sum payment invest it in stocks, bonds, real estate, and in my own annuity or guaranteed payments. That way, I have the best of both worlds!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.